Year-End Financial Forget-Me-Nots

The new year is of course a time of resolutions and soul-searching. People see the coming of a new year as a time to change and make themselves better. People resolve to lose weight, pay off debt, or maybe spend more time with friends. If you haven’t been doing so already, hopefully one of your resolutions will be to start and keep a budget. In our house we didn’t do so well in that department this year – only getting a yearly budget together and then a couple of monthly budgets along the way. After years of saving and investing our finances can take a little abuse, but still I don’t like the feeling of not having control over how we’re spending our money. I want to know if we buy this doodad, or go on this trip or that, that we’ll still have the money to put away for college and retirement during the year. I also don’t want to see our account balances declining because we’re spending more than we’re making, so getting back on course with a good budget will be one of my resolutions this year.

There are a lot of things to do before the new year, however, that you don’t want to forget during all of the holiday madness. Probably the thing to do is to get these things out-of-the-way in October before the holiday madness really begins, but if you haven’t done these things already, maybe take a little time between Christmas and New Years to get them done and start the next year out right.

1. Take some losses. If you have sold some stocks at a profit and had a lot of capital gains in the stock market this year, now is the time to sell some of the losers remaining in your portfolio to offset those gains and reduce your taxes. You can also deduct up to $3,000 in losses against regular income. (Always check on things like this. I’m not a tax guy, plus tax rules change all of the time.) Note that you can’t buy back a stock you sold at a loss for thirty days after the sale, and you can’t buy the same stock less than 30 days before you sell at a loss or the transaction will be called a wash sale and will not be deductible. The IRS doesn’t want you to take a loss when you really stay in the same position.

Also, note that your investment strategy is a lot more important than saving on taxes, so only sell stocks you were planning to unload anyway. Don’t sell some stocks you really like but that have just dropped a bit since you bought them just to take the loss, because chances are you’ll never buy them back even though you think you will. A small move in the price of a stock will make up for a lot of taxes that you pay. If you would buy the stock again today, don’t sell. Again, back earlier in the year you could also have bought more shares, waited 30 days, and then sold the shares on which you had the loss, but you might then have a large position than you want. You could also sell now and hold onto the cash for thirty days so that you could buy the shares back later, but you run the risk of missing a big move up in the mean time. Really, it’s best to sell because you no longer want the shares, but think about the timing to take advantage of tax rules rather than to let tax rules drive your investing.

2. Pull together a yearly budget for 2017. Get together with your spouse and talk about the new year. Talk about how much you want to spend on vacations and luxuries during the year. If your car is ready for a trade, talk about where the money will come from for that. Also, talk about the things you want to start putting money away for like home repairs and the next car, then put it in the budget so it actually happens.

3. Start an IRA. OK, you really don’t need to do this before January 1st because you can make contributions for 2016 through April 15th, but if you go ahead and get the account open, maybe you can contribute some year-end bonus money and get the account funded rather than waiting until April when you may be low on cash. You can also then save up quickly and make a 2017 contribution early rather than waiting until April 15th of 2018. The longer you have the money invested, the more time it has to grow, so it is better to invest early in the year than to wait until the last-minute to make next year’s contribution. Also, use this time when you are home from work for a few days to actually get an IRA open and choose your investments so that you don’t miss another year.

4. Start an educational IRA. If you have kids at home, you should start up an educational IRA and start putting money away for college yesterday. They will be heading out the door to campus before you know it. As with an IRA, you actually have until April 15th to make a contribution for 2016 (see rules here), but with college such a short time away, any extra time you can give your investments to grow is really golden. If you start putting away money early and often, you can let the markets help pay some of the costs.

Disclaimer: This blog is not meant to give financial planning or tax advice. It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

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